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Insider dealing accusations from the 'mouse that roared'

Middleweek has a long list of allegations. Among the most significant is his claim that private information about corporate activity, to which Collins Stewart was privy in its advisory work, was given to market-makers — people who buy and sell shares. Market-makers, says Middleweek, regularly attended the meetings of research and sales teams where upcoming deals were discussed.

He also alleges that Collins Stewart allowed insider trading in its own shares. He alludes to one incident when Terry Smith, chief executive, is said to have told staff that a bid by Collins Stewart and Deutsche Bank to buy Northumbrian Water had been successful — before an official announcement was made.

The deal was believed to have been worth up to £16m in fees. Middleweek claims this was made known to the firm’s clients. Collins Stewart’s shares rose sharply on the day.

In addition, Middleweek alleges that in the months running up to his former employer’s takeover of the broker Tullett & Tokyo, his managers released price-sensitive information about the deal to buoy the company’s shares.

Smith has defended discussing deals in front of market-makers, saying it was obvious the information could not be acted on. But critics point out that the firm’s aggressive drive for profits made this virtually inevitable.

Smith has accused Middleweek of blackmail, saying that he promised to bury his case against the company if it paid him compensation. Despite this and Collins Stewart’s approach to the police about blackmail, Smith has twice shown a willingness to settle the wrongful dismissal case with Middleweek. Last week Middleweek admitted that he had sold 88,000 shares in the company days before filing his lawsuit, and weeks ahead of the crash of the shares.

The Financial Services Authority is understood to have contacted Collins Stewart. But sources close to the FSA, which has a poor record for investigating insider trading, played down the allegations. Smith is more likely to be hurt by the fallout among his customers and investors than by the regulator.